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December 21, 2023

Associated Ship Arrest Within The Context Of Lifting The Veil Of Incorporation

INTRODUCTION

Detailed regulations were made regarding ship and sister ship arrest under the Turkish Commercial Code No. 6102, following our entry to the International Convention on Arrest of Ships 1999. However, even though regulations were made regarding sister ship arrest under the Turkish Commercial Code, there is a legal gap left behind regarding whether ship arrest can be enforced on an associated ship or not. Hereby article covers the associated ship’s arrest under the Turkish Commercial Code and Turkish doctrine with practical terms.

INTERNATIONAL CONVENTION on ARREST of SHIPS 1999 

Art. 1352 et seq. of Turkish Commercial Code No. 6102 (“TTK”), which regulates the rules on ship arrest, are based on the International Convention on Arrest of Ships 1999 (“Convention”), signed in Geneva on March 12, 1999. Referred article regulates that those other ships than the ship which maritime claim arose on herself which shares the same affreighter (owner), i.e., sister ship” can be arrested to cover the maritime claim. This article regulates only the ship arrest on sister ships but not the associated ship arrest was included under the scope of the article. Filling the legal gap in an international convention can be done if and only with the principle of lex fori.

SHIP ARREST REGARDING TURKISH LAW & 

LIFTING THE VEIL of INCORPORATION

Arrestment institution is a kind of temporary legal precaution which lets the debtor’s assets be confiscated via a court order to secure a potential claim that may arise from future executive proceedings held against the debtor. Ship arrest which is a concept related to maritime law regulated under TTK art. 1352 et seq. Under TTK, ship arrest might be possible only for maritime claims, and those claims are listed in TTK in a limited way. Therefore, those claims which unlisted can not be secured via ship arrest [TTK art.1353(3)].

Maritime claim term is defined under TTK art. 1352(1). Those claims which unlisted can not be defined as maritime claims, and thataway it is not likely to secure those claims via ship arrest. Order for ship arrest motion can be held in competent courts before and after filing the case. Thataway, ship arrest motion for Turkish-flagged ships before filing a case can be held in: (i) those courts at where ship has been anchored, moored to a buoy or piling, brought alongside or laid on the stocks; or (ii) with vessels that are recorded in a Turkish Ship Register, those courts at the place of the register; (iii) if the ships are not recorded in a register, those courts at the shipowner’s domicile; or (iv) if the ships are recorded in special registers kept in pursuance of subparagraph three of article 941, those courts at the charterer’s domicile (TTK art.1354). For those foreign-flagged ships located in Turkey, an order for ship arrest can be awarded by only those courts at the place at which the ship has been anchored, moored to a buoy, or piling, brought alongside or laid on the stocks (TTK art. 1355). On the other hand, if a case is filed, then the court which hearings are held in, is the competent court for arrest order (TTK m.1357). Even if a case is filed abroad or an arbitration panel is ongoing, till the final judgement is issued, those courts enlisted under TTK art. 1354 and 1355 are still competent to award a ship arrest order.

Awarded person must within three working days as of the date on which the arrest order is awarded apply for execution of the order to the enforcement office in the territory of the court awarding the order or in the place where the ship is situated; otherwise, the arrest shall automatically be repealed. (TTK art.1364).

In Regard to Sister Ships

In those paragraphs above, general information is given about arrestment precautions. In the present chapter, it will be mentioned which ships can be awarded with arrest order.

TTK art. 1369 lays down the rules about which ships that owned by the debtor can be awarded with the arrest order. While TTK art. 1369(1) is regulating the maritime claim arising ship’s arrest terms; art. 1369(2) is regulating the sister ship arrest. Even though sister ship term is not used in the article body, due to the interpretation which performed, we can conclude that TTK art. 1369(2) regulates the sister ship’s arrest solely. By this means, considering the hierarchy of norms, it is clear that under the Convention, only sister ship’s arrest is regulated, and associated ship arrest is not regulated. In the circumstances, lifting the veil of incorporation under art.2 of Turkish Civil Code, No. 4721 (“TMK”) will be discussed to fill the present gap.

Lifting The Veil of Incorporation and Associated Ship Arrest 

By lifting the veil of incorporation, those third-party entities which have a claim against the debtor legal entity can claim their credits to the partner persons who create the legal entity. The real reason behind the responsibility of those persons who create the legal entity via a lifted veil of incorporation is one of those persons acted against the rule of good faith, which is regulated under Turkish Civil Code art.2 or their usage of a legal entity with malice, hence it creates a kind of abuse of rights. 

Associated ship is the condition between two ships that are owned by the two subsidiary companies tied to the same parent company. Different possibilities that are similar to this condition can arise as associated ship terms too such as: for example, a ship that is controlled by a business and a ship which is controlled by a subsidiary company can be determined as an associated ship. Also, likewise, a ship that is controlled by a natural person and a ship that is controlled by a company owned by the same natural person can be called as associated ship.  

Thataway, in Turkish law, it is essential to the protection of the creditor, so if one of the ships has not had enough value to secure the claim, by lifting the veil on incorporation, it is possible to arrest the associated ship.

For example, creditor (B); even if he had an award of arrest on the ship which controlled by (Z) Co. Ltd., if it is not enough to secure his claim, it is possible to reach out to the (Z)’s only partner natural person (T); by lifting the veil of incorporation in a vertical direction under TMK art. 2 and held a motion for ship arrest award on the ship that controlled by (T).   

Likewise, to (D) who is the parent company of (B) and (Ö) subsidiaries; (G), who is the creditor of (B), can reach it if the ship belonging to (B) fails to secure the claim. In this situation of lifting the veil of incorporation between them, firstly, we can discuss that there is direct (from subsidiary to parent) lifting. For awarding (Ö)’s ship with arrest, this time veil is lifted from (D) to (Ö), so there is reverse lifting. In this case, awarding ship arrest on a ship that is controlled by (Ö) for the creditor of (B), cross lifting comes to light for this situation in total.

Besides this, two individual ships, one of them is controlled by (C) Co. Ltd., which has partners of (M) and (A); and the other one is controlled by (D) Co. Ltd., which has the same partners, are also associated ships. Here, if the creditor of (C)’s credit is not secured by the company, (D)’s ship can be arrested by lifting the veil of incorporation. Thataway used type is called as horizontal lifting.  

CONCLUSION

From the interpretation of all the subjects above, it is concluded that Convention and TTK are regulated the situation of sister ships, no regulations were made on associated ship arrest, and the practical approach must be discussed due to the principle of lex fori, admittedly it is possible to judge can award an associated ship with ship arrest by lifting the veil of incorporation regarding TMK art. 1 due to principle of goodfaith under art. 2.  

Best Regards,

Kılınç Law and Consulting

Authors

Duygu Doğan Şahiner

Duygu Doğan Şahiner

Partner

C. Tilbe Yılmaz

C. Tilbe Yılmaz

Lawyer